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tv   Tonight From Washington  CSPAN  April 28, 2010 8:00pm-11:00pm EDT

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procedures for people to legally travel here to the united states and lived in the united states. >> have you heard directly from any of the government any complaints or any of their concerns? >> i don't have a catalog of that. i am sure that we have heard from a number of governments on this issue. >> now that the u.n. has come out with these reports on the killing of u.n. personnel's in afghanistan last october, in which one of them was a u.s. national, do you have any comment on that? >> i am unclear. i think that there has been investigations both by the u.n. and there are obviously serious concerns that we are in that report. there is also an ongoing investigation by the fbi. >> do you have any comments on it?
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>> i know-- i don't have specific comments on the report itself. i haven't seen it but obviously this is a very serious issue. we have seen some of the video of the incident and it has raised very serious questions. we continue to work through those. >> have you taken up the issue with the afghanistan government? because the u.n. report says afghanistan on forces might have killed that u.n. person. >> this is a matter that we continue to investigate fully. >> finally, on kandahar, the u.s. has announced that it will be withdrawing itself from kandahar. from kandahar. the u.n. is withdrawing their-- from their. >> i will take that question. >> are the two sides getting any
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closer and have we actually received a japanese plan? i know in the past you talked about them floating ideas. are we still in the idea stage or is there a plan? >> i think we are still in the consultation phase. >> is there anyway to see if the two sides are coming closer together? ..
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we continue our consultations. >> you have gone nowhere? this issue has still not been resolved, exactly were you were a year ago, correct? >> we continue our consultations with japan. i don't think we have arrived at where japan has offered us its final understandings and they've promised to do that in may and that's one of the reasons why curt campbell remains is in tokyo. he left tokyo but will be back but while he stopped there yesterday. >> on the iran sanctions, the security council is there a possibility of a resolution coming out?
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>> we continue to work hard on it and will until it is complete. >> will happen in the next two days? >> i would not expected to happen. >> many minorities including those under arrest -- [inaudible] >> well, i would just say our embassy led by the ambassador is intensively engaged in discussions both with the government of thailand and also the united front for democracy against dictatorship. and our message remains what it has been since the situation evolved which is peacefully resolve the situation. thank you.
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at this hearing the commodity futures trading commission and the securities and exchange commission testified about their fiscal 2011 budget and proposed financial regulation. the sec budget request is up 13% to $1.2 billion. while this the sec request the 54% higher than last. two assists to $1 million. the senate appropriations subcommittee hearing is an hour and a half. >> [inaudible conversations]
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[inaudible conversations] good afternoon, i am pleased to convey this hearing and apologize for being late. but this is a hearing to consider the fiscal year 2011 funding request of two of our most important federal regulatory agencies. the commodity futures trading commission and securities and exchange commission and i'm happy to welcome my colleague and i'm sure is a little tired from yesterday but senator collins from maine who is my ranking republican, my friend and referred to gather on many aspects of many different laws over the years and this is an important one and we will have other colleagues join us during the course of the hearing and i
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want to welcome gary gensler, chairman of the cftc and after his testimony mary schapiro, chairman of the sec. both chairman and vested countless hours helping to craft more reliable foundation to that is in the future in these two agencies occupied pivotal positions at the forefront of stimulating and sustaining economic growth. when the subcommittee was created and starred in i insisted that it bring these two agencies to gather into one of preparation subcommittee because they parallel one another in the regulatory responsibilities and i felt the insurance operations no longer applied and they really should be considered as a tandem operation to bring confidence to import marketplaces in america. i think the president has chosen well the two people who died these agencies today. the sec, of course, is responsible for maintaining orderly and efficient stock and
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securities markets and conducting day to day oversight of major market participants. the cftc well known to me is an agency that also carries out mark into compliance and enforcement programs and the futures arena and certainly important to chicago and the state of illinois. the subcommittee has an oversight responsibility over both of these agencies. we are debating whether or not any committee like their corporations committee should have oversight over these two agencies. i believe sincerely that we should and we have dramatically increased the resources and personnel at both of these and i hope will continue that trend because of their responsibilities are growing and we have to provide the technology to meet that challenge but as we provide these resources we also need to provide oversight. no agency that comes before this government should be above
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oversight and review. that's why this subcommittee will continue to work diligently exercising oversight responsibility. there are some who question the but i feel strongly that not only will these agencies receive resources but they will be held accountable for the way they use these resources and spend them. i won't go into detail about the money has been allocated so far to both of these agencies, will get into that unquestioning. i would like to give my colleague senator collins opportunity to make opening statements before mr. gensler testify. >> thank you mr. chairman. let me begin by associating myself with your comments with all of your comments. i know that both of us share of such a commitment to providing these two important consumer agencies with the resources that they needed, but like you, i
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also believe that an effective congressional oversight and if we essentially put the budgets of these two agencies off budget, if we allow them to avoid the annual appropriations process, i believe congressional oversight and accountability will sufferer and therefore i'm going to try to ensure that the financial reform bell that passes and eventually financial reform bill will pass, does not take these agencies and particularly is been proposed for the sec outside of a half the annual appropriations process, i think it's so important. i would note to the to chairman that we have before us today that this subcommittee has been extremely responsive to concerns her for more resources. vivant to reverse the years when you had a insufficient staff to
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do of effective enforcement and in deed as we begin to review you're budget request for this year we should take note of a significant funding increases that are subcommittee provided for your agencies last year. in the case of sec we went about the president's budget request, we gave an increase of nearly $159 million over the previous fiscal year. in the case of the cftc an increase of 23 million over the previous year's. and i have been pushing have very hard to make sure that you not only have a level so staffing you need, but you have the skilled staff that she made. in fact, have a feeling the two chairs are competing for skilled staff in many ways for the attorneys, the experts, the accountants then to need.
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the roles that you are playing who are so important. i will say that i am very disturbed by the recent press reports that senior sec staff are looking at pornography at work instead of focusing on securities fraud if. that behavior is a despicable thing at many times it appears to have occurred during the height of financial crisis and that makes it even more inexplicable. i have looked forward to discussing all lot of of the important issues and financial reform with services a day and again i think to mr. chairman for your leadership in this area. >> thank you senator collins. senator bond, i'm going to recognize mr. gensler. >> let me say briefly because i have a question are two for the chairman and welcome them here.
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and everybody is talking about financial regulatory system and the changes in the heartland and buy them from we have an understanding that wall street provides critical financial support. also understand that the changes to this system are necessary on wall street, but if they alter significantly people do business back home and we want to make sure reformist and right. the derivatives it yes, some related to be regulated, but a lot of the small businesses back home on our in commodities hedging where there are contracts not pose an systemic risk and lumping views into risky derivatives trading as far as i'm concerned with -- it makes no sense and these are not
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speculators but contrast between parties that operate normally and to be blunt, if that goes through i'm afraid that this will entail higher costs for energy production for a chance petition particularly for farmers so i would like to ask about that and appreciate the chance to raise that mr. chairman. >> thank you rematch, let's let mr. gensler give his opening statement then we will pose questions. >> thank you chairman durbin, ranking member collins and senator bond. i thank you for inviting me to testify on behalf of the cftc. with the help and also honored to be here with chairman schapiro, mary and i worked closely on many things and i remember last year we read the table together and i appreciate that because she took more questions. with the help of the subcommittee the cftc has risen to staffing levels of 600 people
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and this is roughly where we were in the '90s. but as with your help that we came from about 440 people just to and have for three years ago. we to believe to fulfill our mission and protect the american public and promote transparency we need 745 people and need to get a bit more in their technology budget. the cftc as you know ensured futures exchanges and clearing houses with over ca work to lower risk to the public an increase transparency and also oversee all of the intermediaries or the dealers who these markets as well. though our staffing level is only slightly higher than they were 10 years ago, futures trading volume and i think i have over here -- the blue is the trading volume in this time and the tenure since 1999 and as you can see our staff actually shrunk and coming back.
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one might look at this and say that's productivity but just imagine a city with pole officers that's grown fivefold and you wouldn't really want to have the police force is shrinking have more productivity because you can't investigate cases and protect the public and it's the same thing in our agency like the police force that shrank while the city grew fivefold. but with the help of the subcommittee which have turned a corner and come back to about as the seine river in the '90s. this increase funding f i can tell you what we've done and why we think known more. we have been able to significantly increase our enforcement division and that has now by the end of this year will be 107 in we think we need to get to 200 people however. second we have just started on a program to do automated surveillance with hundreds of thousands of trades that come in and day, we see all those and that's good and the exchanges
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see them but we want to automate the surveillance of those hundred 21st century computing power to the american public. thirdly we've implemented the authorities that you and others granted under the farm bill in 2008, to bring enhance regulation to the markets and putting out rules on position limits, proposed on foreign-exchange, planning to put up on the location in the near future. but even with these recent increases its are thought that market participants, that we need more and market participants have technology now we have to say up with and that's this thought. so starting in 2010 we started a multi-year project to automate our surveillance and is going to take us several years and included that in the number spiritous seconds we do need staffing levels and resources to conduct annual reviews. and imad to the cftc are we
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inside the banks every year. i found actually because we have shrunk that we were not inside the exchanges and inside the clearing houses every year, just to do what's called a rule enforcement rule and we really need to be there every year and work things changes in the clearing houses, but to do that. of a third, our enforcement staff we feel we need to get it to 200. our financial crisis exposed more seems there require extensive staff resources and manipulation case is particularly take up to two years or two to three years. what dog is putting up for me is our overall funding requests and then i think my time will be up but our overall funding which you helped us get to it is one who assists and 9 million left and we are asking for $2,011,260,000,000 or 7245 full-time equivalents. much of tt is two keep current
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services and taken out more space because of the growth and have to have a cost of living increase and technology. but in addition to that of congress were to move forward as i hope in the next three days that the senate will i would encourage senator collins went to said but if the senate takes up the full debate on derivatives reform the sec and cftc will have additional responsibilities and authorities. in the over-the-counter derivatives is aid to 10 times the size of the on exchange market and i don't want to frighten but is smaller number of transactions. the president was good enough to include $45 million request that will get as per with air. we think in 2011 will late summer and the order of 240 more people and 18 million more in technology to get started on the derivatives oversight and know that chairman schapiro will have those numbers as well as the thought is for 2011 it may be
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conditional appropriation or derivatives reform to go through may be included in the whole appropriations package. with that i be glad to take questions. >> thank you mr. chairman and there are so many questions and we don't like we have time to ask all today but i want to reiterate what was said by senator collins. you're agency and the sec, they're substantially greater investments and what the resources you have to work with. i think it calls for substantially more oversight from our side of the table because there's a certain level of absorption which you can add tiers have current professional manner and increase the workload and then i have found the time i've been around congress beverages tipping point or perhaps there can't be absorbent attractively. there should be a committee of congress watching this and following this making certain we're moving toward the same goal and you are achieving that.
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let me ask and is specifically about technology. my impression having worked with senator collins on this since 9/11 when both of homeland security committee is the federal government is like the last to pick up on a technology. will create rules and obstacles of purchasing an acquisition and all sorts of security questions and we fall far behind the private-sector. do you feel your technology improvements parallel are consistent with the technology available and the private-sector for similar functions? >> let me say i welcome the oversight of this committee and are authorizing committee and working with mary ann and dale and the staffs with the. in terms of technology we have had with your help the ability to get the data resources and we can take in all the transactions on the next day and all the physicians at the end of the day. that's helpful and we also rely on the exchanges because they
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have technology as well but what we are trying to build this 21st century software to actually do lines and alerts so that our staff can then see whether it's a wash sale, whether it's a position limits concern, and then come back to the exchanges, were to see if there is violation, work with following up on that and with hundreds of thousands a day in a to do that. i think there would probably not there yet. the trading experts, we need to get some of that experts and two government. >> is there any bills and obstacles to your inquiring -- acquire the technology you believe is available and that you need? >> the good news is as we have of the legal abilities we do through procurement laws and so forth but to have the legal ability to acquire and it's usually resources. in the past we didn't have the
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hardware to store all the data. we've taken care of the storage side and now have to build some of the software. >> the answer is no. on asking after obstacles. >> and not aware of obstacles other than dollars and the human time to actually do this. >> one other aspect is how much of this is being made available to the public to review your work and the activity is not proprietary opposite. the exchanges which monitor. >> well, there's a great deal of information available in aggregate data and then as senator bonnet as about derivatives reform, if it were to move for their ribby information about that market as well. real-time reporting. i think that answers your questions. >> i am just wondering if there's more of this information being made available to the public. >> we've had success in the
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last. actually been more information available about investment in the market and broken down for years, barack reports every friday about the markets, broken that down to the people and see what swap dealers and money managers or hedge funds are doing in the markets in aggregate, we don't break out the individual. >> and going to yield to senator colin. >> thank you mr. chairman. chairman gensler, as you know i've had a great interest in seeing the commission established the position limits hamas applied to the energy markets. senator lieberman and i held hearings looking at the price spikes in the energy markets a couple of years ago and position limits can potentially help prevent those kinds of an abrupt price movements or market disruptions. could you update us on what is
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being done by the commission to establish a position limits where energy markets. >> thank you center for your leadership on this issue. we publish proposed rules in january and asked for public comment, that actually closed yesterday. go to reestablished who limits ever position limits in the energy markets with the exchanges through 2001 so we're looking to possibly reestablish them and over a thousand comments so what we will do as an agency is reviewing those. the staff has embarked on that. then bring the recommendations and review up to the five commissioners and see how best to proceed based on the recommendations. >> of the second issue that i want to talk to you about in this first round has to do with the regulation of derivatives and this is such a complex and a
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issue. we clearly need more transparency. one of the debates however is the extent to which ngos or manufactures or kirsch restores like hanover's and i say it should face increased costs for investing in commodities essential two their products and they will face increased costs and often find they have to go through the clearing houses. help us understand the debate on derivatives and whether there should be exceptions for nba users, whether you see the agricultural committee is still providing exemptions and disputes over whether they do, educate is a bit on this issue. >> thank you. the one of the key ways to lower risk in derivatives marketplace
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is a clearing house and they've existed since the 90's well regulated since the 30's by derivatives and other clearinghouses by this sec. they stand as middlemen or middle women and i could say between two parties so of one of the parties fails then they stand behind the contract so that's fundamentally lowering risk and as clearing houses have been very strong. they have had access to the discount window. which probably keep it that way and shouldn't expand the safety net to them. the base san between the two-party so what we're recommending and want the bill say is there would be clearing on the products that your standard to be brought into clearing house. something that maybe three-quarters of the market but the chairman of the senate agriculture bill has surged into this and a banking bill will have exemption. of the exemption would be for
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nonfinancial entities. if i might call them commercial entities, hedgers, had never brothers in your state or some of the commercial entities that senator bond referred to, that if there are hedging whether for corn or wheat or interest-rate or currency their hedging, if they're not financial entity. on the other hand, and its insurance company or bank for hedge fund there would have to use the clearing house for their standard product, they're customize things they could still do. >> thank you mr. chairman. >> senator bond. >> thank you very much mr. chairman, et mr. gensler i'm delighted to send they would not required and end user to clear head jiang -- hedging is a community bank wanted to have a large portfolio of loans and
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what is to offset part of that risk by going short of buying some form of putin. who'd be the proper person to regulate that? the bank regulator? the cftc? >> the bank regulator would regulate the banks. >> cindy sec good not be in paul? >> they would not regulate the bank. we wouldn't regulated exchanges of it was a standard that it was bought or sold on exchange henry regulate as we do now. that committed to bank might buy a future right now on the chicago mercantile exchange's to hedge interest-rate. we don't regulate the bank. we regulate just six changes in that example or the clearing house. >> so they would not have to pay a separate fee if they were doing that? they would pay the fees already built in to the existing
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exchanges? >> i believe that's correct. that community bank could do a customized taylor transaction than that not come to a clearing house but if it's so standard the clearing house is there they would bring a tear. >> now, but to live understand that you and the secretary of treasury should say that too where there are customized transactions, to produce that have worked together have adopted a customized derivative or hedging operation where it can't be cleared? do you agree that there is no reason for two parties who developed complex contract be cleared of or have a margin? ..
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they get of phone calls and they say can i let this company fail and one of the problems is if i let it fail it is coming to bring down the community banking system or the foreign credit system. support of it is to have them post margin as well. on these requiring margins if a small bank hedges its risk would it have to put it in marginal or would that be up to the financial -- the provincial regulator to determine whether it was appropriate to make the transaction? >> it is a custom tailored product as you say to the the would be up to the banking regulators to say the big swat dealer, it is the regulator regulating the swap dealer would have that authority if there were to go through congress. >> if you are a major energy producer that has lots of
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contracts with a lot of coal or natural gas that has lots of contracts with lots of energy companies would these be major swap dealers under the new regulations >> senator, the important thing is if they present themselves to the public dealing with swaps they would be regulated -- >> not to the public that present themselves to their customers. >> what we want to guard against is the next aig tebeau we wouldn't want an exemption or loophole the only regulation is regulating swap dealers and not others. most energy companies are not swap dealers. most are just hedging their own business. >> that was the question what am i doing that would fall in a major swap category. >> i don't think most of them -- some are swap dealers. the actually of registered
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trading entities and so forth. >> thank you, mr. chairman and chairman gensler. >> this whole conversation we're having about the future of to the evidence, will be regulated, what will not, what is standard and what would be custom, do you have any projection if we move into this new world of the volume that we would be talking about? you talked earlier about the number of contracts versus the size of the contract. could you get an estimation what we are looking at? >> i wish i had. this is a dark market is hard to ask somebody but the size of the market is about $600 trillion which is about 12 times the world economy. it's estimated half of that is in the u.s. which is about 20 times our economy. we americans use them more than overseas but in terms of the numbers of transactions, though we don't have an actual estimate is probably not a multiple.
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the market we oversee now, the market we oversee now i think the numbers were $34 trillion in the future. so you can see that is the negative-1 or something but the numbers of transaction probably are less than the future transactions or in the hundreds of thousands of trillions of a day. this new market is smaller than that in terms of numbers and trades per day but we don't have an exact number. i wish we did. is to make if we embark in this brave new world do you see the demand for war staffing and more activity? >> i do. the best estimate of the congressional budget office asked for 2011 and we forwarded this to hundred 38 people. with the president's budget did is said let's fund half of those people or 119 in 2011 because we would be sort of growing during the course of the year. and i know the securities and exchange commission has their numbers as well. we both do envision that this is a really important market to the
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american public, but it means little if the congress just authorizes it and we don't bury it with the appropriations. >> you talk about all this. what funding level would allow the cftc to allow funding levels of lead derivatives clearing organization as well as annual examinations of commodity pool operators, trading advisers and future commission merchants? >> we believe in the funding we've asked for for the $216 million that we can do much of what you just said. the annual review of the clearing organizations, trading organizations and so forth. i may need to listen closely. some of those reviews you mentioned are actually done by the self regulatory organizations, but the ones we do we think that is the level. >> my last question is kind of historic. when i first visited the board of trade and worked in the exchange for 25 years ago they still were clinging to their
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early image as protectors of the agriculture sector as well as the trading that's going on the floor and they are just starting to branch out into the new world of the future and now i see when i took a look at the activities that you are watching closely that the financial commodity futures and option contracts make up approximately 79% of the trades that you regulate and other contracts like metals and energy products about 13% only 8% can be characterized as agriculture and major. what kind of challenges does this present to your agency to have this kind of mix which is moving towards much different objects at the seoul and the heart of the futures trading markets? >> well i think you're right. it is a development that happened over the 25 years. i think there's a uniformity consistency with derivatives.
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they are all based upon some underlying commodity. we call it a eurodollar actually commodity into the law. what we've to do on the agency is we expertise in the corps and other experts in the division of market oversight that has expertise and financial products so as the products continue we try to build separate expertise that have a uniform expertise around durham of its but then have product expertise in little bit different. we have problems in the market still about the weak convergence. that is different than what goes on the euro market dollar but we felt the expertise across the product. as we will have to in the future as we take on more responsibilities possibly in what is now called the swap market. sprick let me ask about that. are those kind be so and to begin contract that you're going to put a special burden on the regulators to try to understand
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the part and nature of the transaction >> i think that humility suggests there will be all we are going to learn along the way because we have not as a nation regulated the products in the past we don't have the authorities but i do think for instance interest-rate derivatives where the cftc will take the lead and share a lot of it but it has a lot of similarities to what we do overseeing the eurodollar contracts for now and of course the commodity derivatives have a lot of similarities but there will be things we will be learning along the way. we will be held fully sharing that with you. >> thank you, senator collins? >> thank you chairman. if you sent to chairman's durbin market was like $34 trillion. that raises the question in my mind under senator dodd's bill is the cftc a member of the
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systemic risk council of regulators? >> i believe the answer is yes. >> let me ask the next question, should you be a member -- >> i think so >> if you're not a member of the council, i'm going to offer an amendment to the commodity futures trading commission on that council that think it's important that we try to be as included. >> hi others the council, it may have different names in different bills. >> it does but there are no tax is the chairman confirms that. >> let me ask the question then. how do you plan to help monitor and mitigate the potential for systemic risk arising from the concentrations or interconnectedness of risk related to derivatives products
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>> we have a sort of spider's web between the financial systems and one of the things we've been fighting to lower risk for the american public is to bring of the derivatives in to clearinghouses. clearinghouses again stand between the buyers and sellers and that is one of the ways that we were interconnected message. our system today does not just have to dig to fail, no continental illinois bank because i know as in your state i always thought years ago to be too big to fail in a sense now we have banks that were too interconnected to jail. we let it go it will pull down everything else. that is with those the central lessons of aig and tens of billions of dollars of our money, taxpayers went through other financial institutions. i believe we really need to hopefully spend. there will be stressing pressures, amendment offered to have another extension here and there and i would hope we not
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advocate we have those exemptions for financial entities. we have an exception for the commercial entities but hopefully we don't for the financial entities. >> can you give an example of the kind of transparency that would be helpful to you that what, about because of moving data for the trade to a clearing house -- let me ask this in a better way. what would you know that you don't know now if the trades go through a clearing house? >> as two types of transparency, one to the regulators and on to the public to be a clearing houses and something called triet repositories will give transparency to the regulators and we will know a lot. we will be able to and i know that the sec will able to police the markets from manipulation and fraud and we can currently look at wheat futures and euro
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futures somebody can move the same tree over into the counter interest rate or complex crowded field swaps. so has enforcement agencies began to fall would across to those other markets but there's also public market transparency and public market transparency only comes from reporting the transactions on a real-time basis and for that every end user and others like will only benefit because transparency leads to lower cost, lower bids. it does shift the advantage away from wall street. wall street is not happy with the proposals the administration has made a public market transparency does that. it also lowers risk. remember we were debating toxic gases. the more transparency we bring it lowers risk as well to the public. >> that's three helpful. my final question to you is one that i raised with you in my
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office but i want to raise for the record as well, and that is i've been hearing from some home heating oil companies in maine that a worry that if they have to go through clearinghouses but would jeopardize their ability to enter into contracts with their customers that would be fixed price contracts for the upcoming winter. do you see any problems created for them in this area? >> i think you've heard from them because there's a variety of bills and even on as an advocate as i advocated for mother exceptions but i think that we're center lincoln and senator dodd and all the people that have worked on those two committee bills have come out there would be an exception for a commercial party hedging as long as they were not financial so the home heating oil companies would be exempted from
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having their transactions coming to a clearing house as long as they weren't speculating which i don't think that is what you're doing. no, i think so accommodates that interest. commercial entities makeup may be more why statistics about nine or 10% of the market. we don't know precisely what it is in each and every market but the exemption that is in the senate agriculture and senate banking bill is a balance of interest and a day's exempt of that line or 10% but it is the commercial enterprise like the home heating oil companies of maine. >> thank you. >> senter call crème? >> mr. chairman, thank you. chairman gensler, i am curious to know about the new authorities you are suggesting the cftc should have. what is the status of the legislative authority that you
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are talking about tax has that been enacted into law or is it just a proposal what this point? >> it is a proposal and the reason it came up here is in terms of it went through the funding levels would be different but right now the house of representatives passed the strong bill within the senate hopefully in the next two days you would tell me better but -- >> you forgot the have an election, new house. >> and it's the agricultural committee and banking committee have merged the product. the very strong derivatives portion i believe is getting merged into the overall financial reform bill and i am hopeful with congress's deliberations we will get something to the president's desk. >> this has a budgetary impact, does it not, because it is when to cost more to enforce the new authorities. i assume there will be new hires
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required. what are the other funds that you expect to be needed to be used for? >> we estimate it to the congressional budget office that in 2011 we would need about 240 more people and about $18 million more in technology budget. there's an awful lot of information that would be stored and would have to be assessed and so forth. that is included in the president's budget request and sort of a conditional way if the congress were to adopt financial reform. >> thank you. >> thank you. >> chairman gensler come thank you. there's plenty of other questions we would like to share with you in writing and hope you might be a will to respond in a timely way. other members of the committee may have questions but we thank you for being here today, and we will continue to work with your agency. >> i thank the chairman, senator collins, thank you. now you get chairman shapiro.
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good luck, mary. [laughter] >> we now will hear from the securities and exchange chairman. mary schapiro, and following her presentation, we will proceed with a question from the five minutes. chairman shapiro, thank you for joining us today. we welcome your staff as well. please proceed. >> thank you very much, mr. chairman. chairman, ranking member collins, senator cochran, thank you for labor committee to discuss how the president's fy 2011 budget request would allow the fcc to better pursue the mission of protecting investors from regulating markets and facilitating the capitol formation. when i joined the commission early last year we were just emerging from an extraordinary economic crisis. the markets will still trying to regain firm footing and confidence in the institutions and the government generally and the sec specifically was badly shaken. thanks to the strong support the subcommittee has provided, the
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sec has begun to rebuild the confidence. by making the needed and significant changes to virtually every aspect of the operations. we've brought a new leadership throughout the agency streamline procedures and reform operations we began putting new technology in place and we initiated one of the most significant investor focus will meeting agendas in decades. our enforcement official undertook a top to bottom review meeting to be competing to complete restructuring. silo's annette bening internal connections were torn down. a layer of management was eliminated, for the professionals were front-line duty and they created specialized units delivering it deeper focus to the critical areas such as market abuse and structured products. these efforts are already paying dividends. thanks to the support of this committee among the highlights of my first year we sought more than twice as many temporary restraining orders and asset freezes and 2009 esen 2008. we issued well over twice as many orders investigations.
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we 1,540,000,000 more in orders, penalty orders more than doubled and we filed nearly 10% more actions overall including nearly twice as many involving ponzi schemes. our office of compliance infections and examinations is undergoing a similar review which we expect to yield sycophant restructuring and improvements and to get ahead of the next financial challenge we may face we created a new division of risk, strategy and financial innovation and our staffing who bring in new and different perspectives and expertise. we've made real progress but are restoring investor confidence and rebuilding the trustworthiness of financial institutions in the markets. we will require a sustained regulatory commitment to get fy 2011 will be a critical year and continuing our efforts to reinvigorate the commission and its programs. the challenge we face grows every day. since 2003 the number of registered investment advisers has increased buy nearly 50% and assets under management have grown by $12 trillion.
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today we rely on your than 4,000 individuals to monitor more than 35,000 regulated entities and yet it was only this year that the sec members returned for the level last seen in 2005 and the intervening years tight budgets forced us to cut investment in new information technology by more than half. this subcommittee support has allowed us to reverse the harmful trends and i think you before that. and the presidents fy 2011 budget will allow us to continue on this new path. more staff will mean a deeper pool of institutional expertise as we hire specialists of the experience with today's markets and products. more staff also mean more investigations and trials and smaller gap between the number of examiners and the firms they examined and a greater capacity to respond to the emerging trends. the president's budget will also provide a much-needed 12 million-dollar increase of information technology. our top i.t. priorities
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completion of the new system for the refueling complaints to the investigative leads provided by whistleblowers or other sources. the initial phase is done to be the creation of a single searchable database for the existing tips and complaints to this we will at risk analytics but helpless quickly and efficiently identify the high value tips and search for trends and patterns across the data. we also enhancing the collection and losses and distribution of the disclosure document followed by the commission. this will allow us to monitor the macrotrends and search for the hidden risks and tracks changes. we also plan to complete and remit to the case and examine the management tools available to our enforcement and examination programs. we will never match the technology available to the financial institutions we regulate and the big law firms that we face the ability to search and use the vast mountains of data that we collect will make our team much more competitive. new technology will be accompanied by comprehensive training allowing the staff to
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navigate the constantly evolving financial environment they monitor. in the year ahead we will also continue the pursuit of rulemakings that looks after the interest of investors and response to the changes in the american financial marketplace. ki goals include a thorough review already under way of the rapidly evolving the equity market structure helping shareholders more effectively exercise their rights and giving investors better information to make sound decisions regarding investment in municipal and other securities. i am pleased with the progress we've made but we recognize much work remains to be done to continue to restore investor confidence in the market. the funding levels of the president's budget request is critical for us if we are to continue to improve performance and increasing the complex financial world. thank you. i would be happy to answer questions. >> thank you, chairman schapiro. i've tried a lot of those people just finishing michael lewis's book, and it is an eye opener of what was going on at the time
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that this real estate bubble was created and one of the areas that i had heard about many times that he made reference to was the work of the credit rating agencies and the fact that some of the credit ratings that were given were misleading to say the least. since the beginning of the credit crunch and early 2007 these agencies have come under fire for inflated readings in the mortgage-backed securities that didn't reflect the financial stability to the borrowers. at the request june i ask you some questions about what the sec dustin to restore confidence in these credit rating agencies. what improvements were needed. in your budget justification materials submitted to the subcommittee in february you indicated on page four the fiscal year 2011 budget will enable the sec to carry all the more robust oversight function for credit rating agencies and conduct examinations at half of the registered nationally racket
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negative statistical rating organizations next year, underlined next year. you explain that in 2006 the sec took on a major new responsibility with the credit rating agency reform act which gave the agency the authority to regulate internal process ease of nationally recognized statistical rating organizations such as record keeping and policies to guard against conflicts of interest. you contend and by quote the sec never received any increase or dedicated funding to carry out the new responsibilities and it has been forced to divert positions from other programs in order to staff this vital function. end of quote. i am puzzled by that statement to get in fiscal year 09, congress provided the sec within $970 million in budget authority. $57 million more than the president requested. $57 million above the president's request and 913 million. and in fiscal year ten the current year the conference
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provided $1.1 billion, 85 billion above the president's request. if the sec regards its obligation to oversee credit rating agencies as a high priority, why were you not able to devote some of the increased funds we provided for this function in fiscal year 2009 and 2010? >> senator, we have. i don't have the statement right in front of me but let me assure you we are very committed to an aggressive oversight in the credit rating agencies. we affecting created agencies with the goal to try to examine all of the credit rating agencies on a regular basis. so we are quite committed to solving the problems that we see with respect to credit rating agencies and in addition -- speed is this a title where it says you were going to start work next year? >> we have already begun this work and i will -- sprick it says in the but materials -- sprick i can assure you the work
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has begun. we have a new head of office compliance and examination credit rating agencies are focused of that office -- >> we've just to keep the materials and labor like to share them with you because what you just said is not consistent with what was given to the committee. with me ask about another. in the week of the massive ponzi scheme perpetrated by bernie madoff, the sec has undertaken an array of reforms to reduce similar fraud that the fact that if they would go undetected. on the actions cited in the sec materials as, quote, advocating for a whistle-blower program as a part of a financial regulatory reform legislation the sec has requested expanded authorities from the congress to reward whistle-blowers to bring dee dee to bring forward substantial levin's but federal security violations. current law prevents the sec toward a bounty to a person who provides such and formation leading to the recovery of the civil penalty from an inside trader from a person who tipped information to an inside trader
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or from a person who directly or indirectly controlled and insight trader. now few weeks ago march 29, the sec's inspector general issued a report on how the bounty program is working at the agency. the sec, eg noted that while the sec has had a bounty program in place for more than 20 years for rewarding whistle-blowers for insider trading tips, they're has been very few payments under the program. likewise, the sec hasn't received a large number of applications from individuals seeking the bounty over the 20 year period. the inspector general also found the program hasn't widely been recognized either inside or outside your agency. and inspector general's indicate although the sec is seeking expanded offer ready to reward whistle-blowers who bring forward substantial evidence about others significant federal securities law violations, the current sec bounty program is not fundamentally well designed to be successful. they call for a long list of improvements by the inspector general to make the application
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more user-friendly. establish internal policies and procedures to assist the stuff in assessing the contributions made by whistleblowers and making the bounty award determinations. routinely provide status reports to the whistle blowers regarding the bounty implications. tracks the applications to ensure timely and adequate review they acknowledged the sec has begun to take steps to correct the deficiencies and identified in this whistle-blower bounty program, including consultation with the department of justice, the irs and other agencies. after the interests of the bernie madoff, this inspector general report about your whistleblower program is troubling to me. it indicates that the level of energy which we expected in response to bernie madoff and the embarrassment he brought to your agency and to the government would create a whistleblower program to try to save some of the investors and savers who could be exploited by people like him. >> i would like to address that. when i arrived i ask that we build a more robust and
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effective whistle blower program simply because the inside trading program haven't been effective and that is in part because inside trading rarely has brought to the attention of the sec. it's generally discovered as a result of surveillance on by the exchanges or surveillance done by the sec itself. so we need a program that was far more effective and covered much more than the inside trading which is a small proportion of the cases we bring every year. so the sec had in fact crafted the whistle blower legislation that we believe would be far more effective addressing the issues raised in the inspector general's report and we think it will allow us to leverage the information that whistle-blowers bring to the sec and a broad range of potential violations. >> but you are asking for expanded authority to reward the whistle-blowers if you were discounting what they could do why would you ask for expansions -- >> i am not discounting what they do. i believe that we can make tremendous use of the tips and complaints from whistle-blowers.
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in the narrow context of the inside trading which is the, please the existing program can be applied, it hasn't been an effective program so we need legislative authority to craft a program that will allow us to movie of whistleblowers more meaningful recovery on their claims and that would cover trading which frequently is the result of a whistle-blower coming to us because inside trade tends to be detected from abnormal trading activity and stock prior to the announcement of a merger or an acquisition that is detected by exchange systems referred to the sec and then prosecuted by us. so, the program was flawed in many ways which is why we asked to expand the program and make it more robust and of the legislative authority to do that. >> served as the inspector general's report on the right track within your own agency but the program? >> it is on the right to conduct many of the recommendations he made are a result of talking
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extensively with our staff about how to make this program better. >> senator collins. >> chairman schapiro, there's been three issues in the press lately that affect the sec the i particularly want to ask you about today to get your answers on the record and perhaps put an end to some of the speculation about one of these issues and that is the first one that i am going to begin with. there has been speculation reported in the financial press that the sec's case against goldman sachs was somehow motivated by of the timing of the financial reform bill that the senate will consider. for the record, was the timing
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of the action against goldman sachs in any way connected to the samet action on financial reform? >> absolutely not in a cut out a statement to make that quite clear that we don't tie the actions by the legislative calendar or why anybody else's wishes. we bring the cases when we have the wall and the fact that we support bringing the cases and that is what happened here. as has happened in more than other financial crisis cases that we've brought in the past year. >> odd a share your view on that issue but i think it's important for me to ask you for the record. it's been a i appreciate the opportunity. >> second question i want to ask you has to do with the discipline in of the sec employees who are involved in the case. i really am appalled at the findings by the inspector general because it wasn't just one or two people according to
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the ig report, 33 staffers at the agency were found to have looked at porn on their computers at work over the past five years, and 17 of them were highly paid employees earning between 99,000 to $222,000 of your. an unrelated issue that causes me to ask what the process is and what are you doing to discipline employees has to do with the oig's criticisms of the sec's failure to uncover the bernie madoff ponzi scheme. has the sec take any disciplinary action against employees as a result of the oig
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findings in the case? >> i'm happy to respond to both of those. in the first instance, let me say that it was the agency's own filter that detected the activity that was in the reporting by us to the inspector general and there was 33 points persons as you pointed out over the five-year period. a number of those in fact were outside consultants. with that said, i completely sure your discussed with the conduct. it is unacceptable at the securities exchange commission or anybody else. we will deal swiftly and severely within the federal employment rules and allow all with anybody who views the resources and in fact last week i put out a message to all employees making it clear anyone who abuses the sec resources in this manner or misuses them will be subject to termination so we will deal with this very swiftly
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and all employees are on notice with respect to that. many of these actions were a number of years ago and it is up disciplinary actions were taken at one level or another fee has significantly ramped up the potential penalty. with respect to your last question with respect to bernie madoff, we as a result of the inspector general investigation of the agency's failure to detect the verney madoff rot, there was a recommendation would consider whether discipline as appropriate with respect to employees. i should say that for example in the enforcement division of the 20 employees who were involved with the brahimi of investigations order examinations, 15 have already left the agency. with respect to those who are left, we have put in place a disciplinary process in accordance with the federal rules apply to all federal workers in all situations like this. that process is intended to be fair and deliver it if the
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appropriate and we are going through that right now and it is well under way and i can't really comment on any specific actions but i can assure you a disciplinary process is under way. >> thank you. >> senator cochran. >> mr. chairman, thank you. may i ask whether or not any of the findings and recommendations of the inspector general in the case that senator collins raised have been implemented or have those who were found to have violated regulations or law in this connection, have they been punished, he mentioned five are still working and there's others who resigned as i and understand. >> the inspector general issued his report in august and october and between them they include about 69 different recommendations for the staff.
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as a result of that very promptly the offices that were involved primarily through the court issued corrective action plans which under the federal law generally required of the corrective actions in response to an ig report be taken within a year. as of march 31st comes between four and a half or six months after the reports were issued, the offices have completed corrective actions on a 35 of the 69 recommendations. we are awaiting the inspector general's conference on 19 of those. the rest substantially well under way and i think we are making very significant progress. with respect to the employees, as i mentioned a number of them have already left. we are looking at whether the personnel action should be taken. there is as i said an established process that we are legally required to follow as we would in any employment issue involving a federal worker and
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that process is well under way and we would be happy upon the completion to report back to the committee. >> i asked several constituents from mississippi who called and came to washington to visit with me and other members of congress and the senate to tell us about their experiences and really serious financial dislocations that it has been caused by this scheme. it's really heartbreaking to realize that these people were innocent victims of somebody's agreed and corruption, and i want to be sure that whatever can be put in place to prevent this kind of thing from happening in the future is at dawn and is done quickly. can you assure the committee
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that that is the step and that is the intent of the sec in this case? >> last january i put into motion a number of things we hope would reduce the chances of a tragedy like this ever happening again so we changed the leadership across the agency and restructured the enforcement division and are in the process of restructuring the examination group and we are bringing in people who have new skills that a better able to understand some of the information that mr. madoff managed so expertly for the staff. we are doing better training. over 500 employees have gone through either certified fraud examiners training or chartered financial the analyst trading. we put in place new rules that will allow us to leverage the work of accounting firms when an investment adviser assets with inflation which has happened in the situation they are now required to have a surprise
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followed by the registered accounting firms and allow us to have access to that information immediately saw the commit for suspicious activity and as i mentioned in my statement we have put in place a system to try to better track complaints and referrals to the kind of information that the staff had about bernie madoff will have far less chance of stopping through the cracks. we worked day and night to do everything we can think of to minimize the chances of horrific event like this ever happening again. i share your deep concern about it. >> i.t. appreciate your response and the obvious interest that you have in helping to change things so that it would be less likely we hope not likely tall or something like this to happen in the future. i wish there was a way that we could provide some kind of restitution or request from the
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administration congress could provide you with some authority to help do something to compensate these victims for this terrible scheme. >> through the programs that bernie madoff had been barred title to recovery it won't come anywhere close to replenishing the fund many of them have lost or thought that the federal and over the years of the ponzi scheme but i believe it's paid out around $680 million the trustee has gathered about $1.5 billion of distribution to the tecumseh the long difficult process. it is well under way. >> thank you very much. senator lautenberg? >> welcome. >> welcome to you again. >> ms. schapiro, congratulations on the earnestness with which you have taken forward this
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assignment we desperately needed because not only they lost faith in the government at the same time and it is a subject of interest in mind and i still sit on the board of the columbia business school in 2001i was able to establish the chair at columbia in 2001 that said that called for ethics and corporate governance and while i claim some -- the fact of the matters to me having come to the world i have seen is attrition i found
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very discouraging when you've seen it in the last years when -- given the testimony served earlier the criticism [inaudible] we didn't know. we were not aware of the whistle-blowers of the evidence failures and part of the sec. is that still a source of information do we still get that kind of -- what happens when we get something >> we do we get hundreds of tips each year and one of the problem we discovered last year was they came in from investors and other regulators other regulators, other related entities and it
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can all over the sec and there was no mechanism to a connect the dots that might provide useful information about a trend or a growing problem as a particular product or trading strategy or particular firm so it spends the money this committee generously gave this agency last year in technology dollars to begin to build a centralized repository for all of the tips and complaints and referrals that come into the agency. phase one is completed. the next phase is to ask the vehicle at risk analytics and we've created market intelligence and enforcement division that is charged with responsibility for knowing the the data that is in their understanding what creates the highest level of risk for investing public following up on those leads tree watching and following and checking them and making sure that we act as responsibly as we can. there are hundreds of thousands and i would not sit here and
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tell you we will never miss another one. but we have done everything we can think of to do. >> could it be considered fairly reliable source of increased that the sec was a prophetic response on one case. >> absolutely. >> [inaudible] as a top authority and obviously it is spread about body the years of neglect. how do you stimulate the people to go after these things.
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there is some of neglect. are you able to keep track of what is going on there? >> it's a great question and i will tell you and i don't mean to sound policy and negative but there is a culture of the agency that was maybe submerged a little bit over the last several years that there is tremendous enthusiasm again for the enforcement rules. we took the handcuffs off the enforcement division within a week after all your life at the end of january last year we told the enforcement staff we could issue subpoenas without waiting for the five commissioners to fit in a meeting and vote on it. it took months of the investigative process. be enabled the staff to go ahead and negotiate corporate penalties and enforcement cases answer to getting a promotion to beat the permission and not the process and power meant to do their job we preach despite the
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cut five specialized units of people with deep expertise and we have tremendous recruiting people that will focus on specific areas and get deep and knowledgeable about structure progress from asset management come inside channing and marketed u.s, corrupt practices act and so forth some of these specialized units that are going to be far more efficient i believe in bringing the cases. we took a layer of management out of the enforcement division and put hundreds of really talented people back on the front lines of doing investigations and bringing cases. even the most significant restructuring of the enforcement program and 30 years and i think we are already seeing paid dividends in the level of complexities cases that we are bringing and if you look at the major cases over the last year they are quite extraordinary. and a number of cases, so for example in 2009 over 2008 we should donner twice as many ponzi schemes far earlier than
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the scheme would never have been shut down. >> i would just ask the chairman if i might take that a moment from using and say that as you look at executive compensation which i know is one of the things that you see and i ran a pretty good size company and would be forthcoming year and was very conscious of things that we did to stimulate attitudes within the working population of the company. when we put any money into the offside world to try to help as we have effectively, to me, a termination bonus what not to be a mark base but based on what the individuals for the company
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and instead of paying a bonus immediately over a five-year pro quo and see if the company [inaudible] i don't know what right you had in the sec to make the recommendations on that basis or even to think about, but public consciousness. >> center, don't think we can dictate the terms of compensation arrangements. we did new world in january in effect for the current proxy season that require the board of directors to explain to the shareholders how they compensate risk-taking in the corporation and whether they are compensation programs for all employees and not just the top flight might incentivize short-term risk taking and how the board handles risk within the organization more broadly as well as other what we call proxy enhancements, and i think it is disclosure based as much of the walls are but i think it is
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forcing people to think about what do they want to say about the compensation programs and how do they want to explain the link between compensation and risks which we see over the financial crisis to be a strong link and limit the effects of the end of the day. >> [inaudible] [laughter] >> much five-year. >> chairman schapiro, you announced the a kind of a new chief compliance officer to serve as an internal watchdog to monitor the security holding transactions by your own employees and in your own words you said that this had to be a world-class compliance program just as we expect from those that we regulate. there was an article that followed that station once they found out that this compliance officer would be standing on the packing order were the administrative stairsteps of the
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agency and there was concern that this person really didn't report was in a post buried within the office of ethics counsel, didn't have an independent status and didn't report to you or other high ranking officials and the question was raised whether or not this really was a world-class attempt to deal with serious problems that might involve some conflict of interest within your own agency. >> let me address that. that article was off the mark. when i arrived at the sec i was surprised, i will say, to learn that there wasn't a system for monitoring employees stock transaction, and i compliment the organization where we had quite a rigorous one. so i immediately brought in a contractor to help us develop a system that what require every employee to answer all of their stockholdings and securities accounts into a centralized system. it enables employees to clear any trades and ultimately will
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receive directly from the brokerage firms duplicative copies of employees' statements. at the same time we are working with office of ethics to bolster the existing rules that apply across the government so that no employee will be permitted to train in the stock if any company under investigation by the sec with or not they had any knowledge of it at all and that will also require the clearance and certification that they have access to no public material information about those companies and we are negotiating those rules out with the office of government ethics right now. the person we hired is responsible for the system. we have an entire office of ethics within the sec. i meet with them regularly and in fact i met with a new compliance officer this morning but her responsibilities with respect to that system is not a chief compliance officer in the sense of one in a brokerage firm which i think that article was trying to equate. >> does this person, can this
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person report directly to you? >> she could come in fact i met with her yesterday, and she knows that my door is open to her at any time because she is responsible for managing the system within the context of the other ethical refuse to go on within the agency. it made sense to put her in the office of the general counsel. i have no problem changing the reporting line. i think she will get more attention and focus and she knows she can come to me any time. frankly is every employee on every issue that is of concern to them. >> let me ask you about the report that was released on april 16th and the inspector general's office about the stanford case and the fact that this case was alan stanford was indicted last year over a $7 billion fraud case and accused of fleeing more than 21,000 people primarily through the sale of the prized investment. issued by the bank headquarters in antigua and then sold brokerage. the sec's fort worth office was
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aware since 1997 anyone on stanford was likely operating a ponzi scheme but as the report states no meaningful effort was made by enforcement to investigate. the sec agents began looking at people's companies in 1998, 2002 and in 2004. the ig report also said supervisors were more interested in the quicker turnaround cases of the time, not the kind of examinations needed to look into a complex entity like stanford and to make it worse the chief of enforcement for it with office who helped quash the increase later went to work for stanford in 2006. before he was told by the sec to stop because, quote, it was improper to do so. like the case of bernie madoff, the report offers another reminder of potential breakdowns and the regulatory oversight and i recognize that these circumstances in the case like the dirty needle situation preceded your rifle.
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yet the cases like this can fester and than doubled to surface years later. what controls of the sec have in place now that would ensure that it is a disturbing mess like the madoff case does not reoccur? what else should be done to make sure that they don't? >> let me speak specifically and then i will talk about all of the changes we've put in place with respect to madoff although i am happy to discuss those and much more detail. with respect to the conduct of their was discussed by the inspector general in the stanford case, i mean there were many missed opportunities without a doubt in that 1997 to 2005 period before the agency took stanford up seriously and earnestly to have done something and i wasn't there so i don't truly understand what happened. i will tell you that we have new leadership across-the-board in this agency and the inspections program as well as enforcement
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program. we have created escalation committees so that if an examiner believes they found something that is a problem and they are not getting the response when they refer over to the enforcement division that they want the ticket to an escalation committee and that will go all the way into the senior ranks of the organization. we have new management reporting metrics that have been put in place in the enforcement division and a regular review of open matters in both the examination group and the enforcement group so that we can be sure of things that are not sitting for a long time. the decisions will be made from time to time to shut down an average because there is not sufficient evidence and we could miss something by doing that. but you have to make a conscious decision based on the evidence that is in front of people at the time to read it can't be because of neglect of something hasn't been pursued. i think between the leadership changes, the structural changes within the enforcement and the structural changes that i anticipate we will be announcing in the inspections group before very long, the creation of the
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escalation committee and the new reporting mechanisms within the division's volume hopeful we will never have a repeat of that incident. >> what we say at the closing before turning you over to sadr collins the questions i passed today have been planted and involve issues that are important and controversial. it is part of our responsibility on this side of the table with the oversight of your agency to ask those questions. there are some in the senate now who want us to be taken out of this process and of all these questions to be asked and i think that is wrong. we have a responsibility to make sure that you do your job and do it well and provide you with the resources to accomplish your goals and the notion of the oversight appropriations committee is unnecessary for an agency as important as the securities exchange commission is just plain wrong and i hope that we can continue a positive relationship providing you the resources and the support that you need, that you can count on this as long as this debate could this appropriations
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committees of of each year you will face questions that get to the heart of your activities and be held accountable as we are held accountable. >> i appreciate that, and i always endeavor to be completely completelytrans transparent what is happening at the sec. what i see that is wrong and how i am trying to fix it, this is an institution that must always learn from its mistakes and that is my commitment to you. >> a store of confidence in your leadership we have a responsibility on our side of the table as well. >> mr. chairman, first let me wholeheartedly agree with the statements that you just made, and i'm going to bring up one of those types of questions right now, too. in 2004, at the direction of congress, the sec established the office of global security risk management, and this was created and probably the chairman was involved because i know this is an issue that
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mattered to him for a long time -- it was created to protect investors from the rest associated with him investing in companies doing business in the nations that are designated at state sponsors of terrorism by the department of state. the office within the sec has failed to vigorously carry out its mandate, and that is its most important mandate is to ensure that all companies that are sold on american exchanges that operate in those companies or disclosing their activities to investors. ..
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sudan or cuba on the state department last. the disclosure the requirements are based on materiality and that's something make a change. but there's not a separate line item disclosure for any level of business with one of those countries so we look at materiality both quantitatively and qualitatively so the amount of the business that's done with one of those countries' relative to the size of the company is
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its humanitarian or potentially business that could have a military application, for example. is the business continuous or isolated, is there one instance and so forth so we do this materiality analysis and if the staff determines that the contact with one of these countries is material that disclosure is required. we can look back and back and we are looking at whether this should be line item disclosure without regard to the materiality of the business conduct between the public company and one of these four nations that are currently on the last. >> well, let me follow up on that because i am told that in november 2007 the sec issued a concept release seeking comment on whether to develop a better mechanism to allow investors to have a better disclosures in
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this area and that the comment time ended in january and 2008 and that did sec has taken no action since that time. >> two go back to that, that's the history as i understand it and i've asked the staff to go back to that. again as i said, we're looking at whether line item as closure is opposed to our normal you must disclose material risks to the business or material levels of business and its regard -- >> but why has there been no action for two years, more than two years? >> i think there's been a general view of -- our disclosures system is about disclosure that helps people make investment decisions and the right decisions about purchasing or selling financial assets and that's business being done with respect to one of
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these countries either the qualitative materiality or quantitative material on the standards that it will not be useful disclosure. as i say, we're revisiting that issue now. >> what i would say is i thank you have a good point about business, but you ought to complete the work product so that investors do have access to that information and because there are many investors who won't want to do business with a company or won't want to buy shares in a company that's doing business with one of these countries. >> if i get that one thing, because you mentioned the law with respect to divestiture, there are very recent filing reviews showing that to mitchell funds have actually relied on that safe harbor to divest themselves of stocks during business in sudan so i think that's very good news. >> eid youtube.
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yesterday -- that the hearings on goldman sachs i asked what i thought was a pretty straightforward question to several of the bankers. i asked them whether they consider themselves to have a duty to act in the best interests of their clients, the kind of fiduciary obligation that investment advisers have. to say that they dance around and elated that, in answering my question, would be an understatement. but the fact is that the law currently does not impose that kind of fiduciary obligation on broker-dealers. in your judgment, should the law imposes a fiduciary obligation on broker-dealers? >> absolutely should and we've been strongly advocating for the regulatory reform bill to
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require that both investment advisers and we've discussed in the retell context not with respect to the discussions this week about large institutional investors but at a minimum when dealing with retell public they are entitled to know the financial service professionals sitting across the table from them puts the customers' interests first and have their own and all circumstances. there's some conflict that perhaps can be disclosed and some conflicts that can't in my view, the duty that exists on the advisory side does not exist clearly on the broker-dealer side and we need the law to make this a uniform fiduciary duty. i'm very hopeful that the senate bill which does not have that provision right now will emerge with that provision in place. right now we are required to do a study and we're happy to study the issue although this before
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contractor with the rand corporation several years ago to do a study of this issue -- there's lots of work out there and we will look again but we hope when the study is done it would trigger our ability to write the rules that would create a fiduciary duty of the study suggested that necessary. my personal bias out of the box is that is necessary. >> in writing this new role like we did in should we distinguish between individual who retail investors for whom having debt obligation is more important because they're less sophisticated arguably the most institutional investors or should apply across the board? >> in the first and since we've had to take care retail investors. this is a disgraceful situation in many ways but also not in the senate agriculture bill there is fiduciary duty that swap dealers
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of two pension plans and municipalities and that seems to me to be a good idea. and so i think we could stop this up over time to be broader have but i would start very clearly with three tel. >> thank you. if you would provide me with a copy or provide the subcommittee with copy of the rand study that would be helpful to us. mr. chairman, i apologize for exceeding my time. i'm going to submit a question on allied capital, that case which was also criticized by this aig for the record and other questions as well but thank you for the additional time. >> thank you very much of let me also say that i applaud your last line of questioning and believe you really touched on something that's essential and maybe we can find some bipartisan ground to share on this. i think i can support your effort and i'm glad to hear the chairman believes it's a wise undertaking some of you can build on that.
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the record will be open for how many days? until next wednesday so we may submit written questions and others may join it and in the meantime thank you for being with us. thank you, keep up the good work. the subcommittee stands adjourned. [inaudible conversations] >> [inaudibleonrsations] next house hearing on the development of antibiotics and the problem of drug-resistant bacteria.
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the people who are coming to us purvis in the housing market want to have security and gave them exposure to the housing market and that's what they got. >> the senate hearing with goldman sachs with nearly 11 hours. see the key moments, sea every moment. it is washington your way at the c-span video library.
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every program since 1987 free online. the house committee on health held a hearing examiner problem of drug-resistant bacteria. committee members heard from cdc director thomas friedman and national institute of allergy and infectious diseases director anthony pouchy. at this to our hearing. [inaudible conversations] the hearing of the subcommittee is called to order.
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today we're having a hearing on antibiotic resistance and the threat to public health and i will first recognize myself for an opening statement. this is a very serious public health concern and i know it's an issue of great interest to many members of the house of representatives. antibiotics are among the most embattled medical innovations of the 20th century, the first discovered in the late 1920's antibiotics became part of routine treatments to combat bacterial infections in the 1940's and one of the main contributors and the decline of infectious diseases. these were suddenly curable with administration of these wonder drugs and, in fact, the cdc lists control over infectious disease as one of the top-10 great public health achievements of the last century and mentions anti micro bills as crucial to
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that accomplishment. but bacterial are living organisms and they can and will rotate to resist drugs and now find ourselves in a situation where our shriver over infectious diseases is in jeopardy. more and more bacteria proving to be resistant to the antibiotics currently on the market and impartially these resistant diseases are among the most chronic illnesses and the population including respiratory diseases such as ammonia, food related diseases including the coli and salmonella, and hospital required infection such as methicillin-resistant staphylococcus or mor commonly known as mrsa and mrsa in particular is migrating out of a health care setting and can be found in the community posing a threat to americans. in newspapers across the nation report on the dangers and
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prevalence of these bacteria and my signature is a we had a number of schools closed a few years ago after children diagnosed with mrsa and some houseflies for weeks. i'm sure everyone remembers the scare not long ago in the house of representatives when mrsa was found in the staff jim. the consequences of these antibiotic resistant bacteria is deadly. 2005 this cdc reported that 95,000 americans contacted mrsa and over 18,000 died as a result of that disease including young and otherwise healthy patients. many in the medical community believe that mrsa might not be as big a threat as some of the other antibiotic resistance resistance diseases and are still are some that can treat mrsa and for others like -- there are few options and as articles have been, this was a
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concern among the wounded troops and iraq. 35 percent of those infections responded to only one antibiotic on the market and 4 percent were resistant to all of our current drug. it is horrifying to me to thank our soldiers can survive a war only to then succumbed to a bacterial infection we are powerless to treat. intriguing is highly resistant infections physicians have to prescribe more expensive and older and less commonly used antibiotics beckham cause serious side effects including nerve and kidney damage. patients end up hospitalized for logger times and often suffer recurring infections that's in the back to the dr. time and again not surprisingly, they tend to be expensive not to mention the threat they pose to all who come in contact with the patience and as high this year it is important today. an eager to hear from our witnesses about the problems with antibiotic resistant bacteria paul but undressing is
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and i know both of you are engaged in some research that will help us tackle antibiotic resistance and the most possible way. i want to welcome the committee and i apologize for the fact we have destroyed. i know one or both of you mentioned catching a plane and i don't know the situation is with that but for now i will recognize our ranking member mr. shimkus for opening statement. >> thank you mr. chairman, antimicrobial drugs are effective and life-saving when used correctly we know that bacteria can quickly evolve and become resistant to drugs and resistance is already concern and our communities particularly in the hospital setting when numerous deaths occurred as a result of resistance. i'm glad we have our panel before us in the cdc and nih to discuss roe of the federal government particularly with a u.s. interagency task force on antibiotic resistance.
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i look for to the hearing has more on the progress made and what my next by from the task force's update action plan expected to be released later this year. a devil is believed crucial component is providing industry incentives every last remark that encourages development of more anti microbial drugs. any new measures have turned away from the new antimicrobrials because of increased incentives to develop drugs and other therapeutic areas and the uncertainty of the marketplace. as members we should work hard to break down the barriers that occurred like extended the exclusivity for new antibiotics and economic incentives such as tax credit. unfortunately the $27 billion tax on a drug industry and the health reform law will have negative effect and only serve and not encourage more development of antibiotics. perhaps that is in the case with
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this is another example of why we must hold hearings on the new health reform law. last week raised issues with your problems. pre-existing conditions to cover for children, individuals who don't qualify for the new high-risk pools, families being forced into medicaid, premiums going to rise on average of $2,100 for those on the individual market and being a will to drop coverage and avoid penalties after three months and one day. and this week we are the have two questions. the majority repeatedly said health care spending would decrease and the president pledged to the american people cost of the town, not up as a result of health reform. yet cms release records a national health care expectations expenditures will increase by 311 billion, making health care 21% of gdp. should we believe the cms i jury experts? where the majority of their bill? now law. are the five wonders of a
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5.1 billion in cuts to medicare and realistic and unsustainable? as the report claims. will the cuts drive 15% of hospitals in the red and forced to close their doors? how with this jeopardize access to care for seniors? what does the hospital committee say about this? are 50 percent of seniors will going to lose their medicare advantage plans? 1,014,000,000 low-wage working americans have their employer insurance dropped forcing them to medicaid? how will the state medicaid plans handle these new populations and cost? lisa the questions being raised and the real concerns and fears coming from the public. of this committee and this congress cannot bury our heads in the sand and pretend they still exist in this massive health reform law. chairman villone i asked before and hope in german waxman is here i hope we have hearings on the implementation of this and address some of these problems
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that we should start moving to fix it before they actually become problems. identify quite a few of them. with that mr. chairman i yield back my time. >> they give. chairman waxman is recognized for opening statement. >> thank you mr. chairman. we need to debate the healthcare bill to review its implementation but we ought to be able to chew gum and walk the same time here is not what two make much difference if you have health insurance or not if you're going to die from something that could have been prevented from an antibiotic and we're seeing more and more antibiotic resistance. the revolution of antibiotics started with penicillin in 1927 and has been a major accomplishment and the health care world and has led to many people surviving things that might have cost their lives before we had antibiotics skin
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infections could creek turned tail and childbirth could be a death sentence for both mother and baby and superficial wounds could deteriorate rapidly often resulting in invitation. antibiotics change all that and with the discovery of these doctors could readily treat infections that literally save lives. modernization of madison was launched. 80 years later this medical miracle is still saving lives and without antibiotics many of today's kids are protocols would be nearly impossible to use because the man system would become a compromise and the treatments would quickly lead people to die from opportunistic infections without antibiotics. some in brief we cannot do 21st century madison without antibiotics when they like the provisions of the health care bill or not. we need to have it antibiotics available and shockingly experts
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which i understand is the reason for this hearing are telling us that we're in the press as of losing the power of many of today's antibiotics. as a greater number of bacteria become more resistant to them for reasons we will explore this afternoon antibiotics in turn become less effective making infections far more hazardous to health. this is not an exaggeration or hyperbole or even the stuff of some hypothetical computer model. this is not propaganda which we hear a lot about in these committees sessions when people are campaigning to the november election and not looking at the issues we have to deal with. two many americans already succumbing to inability to treat infections in the numbers are staggering. today will learn about the impact of antibiotic resistance on health from to the nation's leading experts on infectious diseases, dr. tom friedman,
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director of cdc, dr. fauci, director of national institute of allergy infectious diseases and in time age. as we do i hope we can appreciate the severity of the problem we face and to gather worked for public-private plan of attack. i don't know 22 and obviously research is their default and most of for an answer to a problem like this. but is going to take a strong multifaceted in a coordinated strategy to get the job done. i think we have to think about things that haven't been on the agenda for a while because the pressure some special interests, the impact of using antibiotics and without medical need when applied to large numbers. is this resulting in more drug-resistant antibiotics. what will it take to get the pharmaceutical companies to do
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more work in this area of the and i met with the group yesterday hutto may they need this and that and the other thing but don't want to work on antibiotics because it's not profitable enough. well, let's look at that problem. let's look at whatever is going to take to keep our eye on the objectives. we cannot afford a to live in a world where antibiotics don't work anymore. and i think the numbers are just so staggering. 90,000 americans die each year of deadly hospital acquired infections which are anomaly caused by antibiotic resistant bacteria, or 18,000 including healthy young people die annually from mrsa. we have seen soldiers the deadly enemies and directly to return home with the epidemic have deadly antibiotic resistant
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bacteria and any more hearing so we can say these words -- say these words correctly. [laughter] because these are and factions that we want to stop with antibiotics. thank you very much mr. chairman and al gore to testimony. >> thank you chairman waxman. the gentleman from kentucky, mr. winfield. >> mr. chairman, thank you very much. we look for to this very important hearing and certainly appreciate our to witnesses for being here today. i would however like to reiterate the importance and necessity in my view of holding hearings regarding the implementations of this massive and far reaching change to our health delivery system. as chairman waxman noted about hospital infection, according to the center for disease control 2 million people acquire
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bacterial infections in hospitals each year and of that around 90,000 people die because of these infections. according to the information given to may 70 percent of the hospital acquired infections are caused by bacteria that are resistant to at least one of the drugs most commonly used to treat them. i also do believe that we must explore incentives and other options to encourage pharmaceutical companies to continue their research coming up with new medicines to deal with this problem. i look for to testimony of our witnesses today and i yield back the balance of my time. >> thank you. the gentlewoman from the virgin islands, miss christiansen. >> thank you chairman pallone and dr. fauci and dr. freeman for being here. good to see you again.
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the hard facts and data about the prevalence of antibiotic resistant bacteria is nothing short of astounding. because of repeated and widespread improper antibiotic use almost every type of bacteria has become stronger and less responsive to treatment. between five and 10 percent of all hospital patients as roughly 2 million people that will develop infection and 90,000 patients die. this trend is related to the fact that more than 7 percent of bacteria cause these are resistant to release one antibiotics this most commonly used to treat them. will the full economic impact is difficult to determine the estimated costs for summer and vicinity of 5 billion every year. was so disturbing is because of this basing prospect of the times in health care we're only able to offer a hand to hold. not only by antibiotics price out of reach but we may see cases where there are none that are affected in a given direction and that's
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unacceptable. as a physician i know the pressures we are always under and prescribing antibiotics. committed a point not to use them until i thought there indicated for my patients or my family. i think gw hard for that. as i see the resistance forces out of the bar. the only way is a national is a huge developing a vaccine as they did which had a good results as far as development of antibiotics and by the cdc campaign directed at writers including hospitals and the public. none are easy but have to become a party because this country in the world cannot revert to the dark is a madison. thank you speeeighteen -- chairman pallone for all of this hearing. i look for to your testimony and the discussion. >> thank you. gentleman from pennsylvania,
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mr. pitts. >> thank you mr. chairman. antimicrobrials drugs have saved countless lives over the last half century. and enhance the quality of life for many more people. unfortunately we are observing a growing amount of bacterial resistance to antibiotics and infectious diseases are increasingly difficult to treat as a result. there are multiple reasons for our micros becoming drug-resistant including in a proper use by physicians and inadequate diagnostics, hospital use and agricultural use. i was pleased to see that in the majority's memo for this hearing they noted that quote, bob the national institute of allergy and infectious diseases and knowledge there is debate about the public health impact of an antimicrobrials use in animal agriculture. particularly in animal feed.
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because i believe that the legitimate and judicious use of a antibiotics in animal agriculture has been unfairly attacked and demonized in recent years. fda puts these drugs through a rigorous approval process with many new or antibiotics having been extensively reviewed specifically to assess in the rest to humans as a result of drug resistance. with treatment, prevention, control and growth promotion, feed, efficiency or all fda approved uses before antibiotics. fda also conducts post approval monitoring and multiple public and private surveillance systems. ..
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the gentleman from texas, mr. burgess. >> thank you mr. chairman and due to the high-octane high octane witnesses we have i'm going to wave an opening statement and submit part-time for questions. >> without objection, so ordered and did you have a statement? let me say, all the statements will be submitted for the record thank you. the gentleman from-- the gentlewoman from illinois,
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ms. schakowsky. >> i will put my full statement and the record but i do have a couple of comments. in my home state, the illinois illinois department of health has stated that in its four-year incidence of mrsa has increased 57% over 10,000 cases. and as we are going to hear from the cdc and the national institute of allergy and infectious diseases, antibiotics become less effective as humans are increasingly and often unnecessarily exposed to them. this can happen when they are overprescribed but it also happens through other types of exposures. for this reason, i find the rampant use of antibiotics for non-therapeutic purposes and livestock populations alarming. many factory farms give cows, chickens and pigs antibiotics in their daily feed. that they are not treating any diseases. they are promoting growth in compensating for bad sanitation. when antibiotics are used in
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livestock populations it gets into our food system and to our water supply, using highly potent medications for this type of use continues to contribute to the increasing prevalence of antibiotic resistant infections. i applaud my good friend representative louise slaughter for introducing the preservation of antibiotics for medical treatment act which would take needed steps to protect the effectiveness of antibiotics on a-- i am a co-sponsor this legislation and i look forward to dr. frieden and dr. fauci's testimony on this issue. i hope you will attest this as well and i've will yield that. >> thank you. the gentlewoman from tennessee, ms. blackburn. >> thank you and dr. frieden and dr. fauci thank you for being with us today. i will have to say this is a hearing i have waited a long time for us to have. ifrs wrote you mr. chairman in
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october 07 with my concerns about mrsa and the fact that we needed to look into this. i find it astounding when you look at the 2005 stats, that there are more people that die from mrsa caused infections than those that die from aids, parkinson's, emphysema or homicide each year. and i do think that this is something that has to be addressed. i was surprised as they looked at the issue first in 07, to find out from our tennessee department of health that there is not a national standard on a way to report mrsa issues, and that is of concern to me. do something i want to address with both of you as we move through the hearing. i do have a full statement that i want to submit for the record, but i thank you for the hearing and look forward to our witness is. >> the full statement will be entered into the record. thank you.
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are vice chair, ms. caps, the gentleman from california. >> thank you chairman pallone. i will be very brief but i want to thank you for holding the hearing and thank you are witnesses for coming in their testimony. i have to give a special thanks to dr. fauci they gave a stirring commencement speech for someone named amy fisher who is now my medical health specialist on my staff so you must have said just the right thing when she graduated from emory. thank you very much. this issue in antibiotic resistance is of extreme importance to the health and economic well-being of all americans. resistant strains of bacteria are harder to treat, often requiring longer and more difficult courses of treatment and the longer an individual must been fighting an illness the greater the loss of valuable time at work and at home with family but there is also an economic consequence to the nation as a whole. these infections cost the health care more expensive treatments
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in nearly $5 billion in annual costs associated with hospital-acquired infections. for many years we have taken for granted that when we are sick we can go to her doctor, take a weeks worth of medicine and be well again. now he must face the fact that we needed more comprehensive approach to treating back ariel infections. perhaps most concerning is that there are broad range of potential causes for the antibiotic resistance in the specs us today. individual levels like when and what medicines a doctor prescribes and how well a patient adheres to treatment combined with health care associated infections, agricultural antibiotic use in the lack of new antibiotic treatment. all of these have contributed to the current state of antibiotic resistance. i look forward to hearing are witnesses thoughts on how we can employ evidence-based strategies to combat antibiotic resistance and the multiple factors that contribute to it in a coordinated approach. thank you for being here and i yield back.
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>> thank you. next, the gentleman from utah, mr. matheson. >> thank you mr. chairman. i have a full statement but i want to make one brief comment. i just want to point out that on this important issue i have once again were introduced in this congress h.r. 2400, the strategies to address antimicrobial resistant act with the star act. i believe this is a comprehensive piece of legislation to strengthen our country's response to pathogens that are increasingly becoming resistant to antibiotics. senator sherrod round and orrin hatch will be introducing a companion bill in the senate in the coming weeks. i encourage this hearing and others to move forward and i hope these legislations can be contributing to this bait-- debate and with that i yield back. >> thankthank you. the gentleman from ohio, mr. space. >> thank you mr. chairman holding this hearing and i would
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like to tanker the witnesses for their attendance today. we have all as a nation taken granted that the antibiotics were there. as a parent, i have thought much about the consequences if they hadn't been there, and it is a little unnerving now to see that in combating some forms of bacteria, we can now say antibiotics are less effective, and in the words of chairman waxman, this would be a very frightening world if it were a world without antibiotics, ring true. we are pleased to cdc and fda and other agencies have begun to take basic steps to combat the problem. i think public awareness is a big part of it and i think this congress and other agencies have an obligation to advance research of the issue. my only hope is that, if this congress, this term decides to take legislative action that we do so with a sense of moderation
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to the extent that that can be done. concern always is that we may be overreaching so we don't want to see that. researching and developing a solution to this problem is very important, but it assuring access to antibiotics for all americans is equally important during the process and without, mr. mr. chairman i yield back. >> thank you. the gentlewoman from florida, ms. castor. >> thank you mr. chairman for holding this evidence hearing on human resistance to antibiotic drugs. welcome to eyewitnesses. this is a critical and rather frightening issue that we must work to resolve. particularly the findings of the recently released agency for health care research and quality report are alarming. postoperative let infections increased by a person, urinary tract infections increased by 3.6%. they are more statistic like
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that in the number should be going down, not. i thought it was also disturbing the reports aren't blacks, hispanics and native americans patients were less likely than whites to receive preventative antibiotics before surgery in a timely manner so we still have those disparities in health care and all these infections caused nearly 100,000 deaths each year and account for up $26 billion a year in additional costs. many of these infections are resistant to some of the strongest antibiotics causing some patients to be in the hospital for weeks or months. in florida, drug-resistant mrsa infections are going, and are infecting healthy adults and children. the number of cases in florida from outpatient facilities increased more than four times in a three-year period from 2003 to 2005. drug-resistant gram-negative infections, different the mercer also on the rise. these infections are primarily
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in hospitals or long-term care settings. they the high death rate and are resistant to antibiotics, usually known as the last line of defense. according to the cdc, the antimicrobial resistance problem is a major public health crisis. researchers that i've heard from have highlighted to me that lack of resources coming from nih for this particular issue. there is a lack of resources to detect monitoring a global resistance and public health laboratories. florida like other states does not have the technical ability to categorize this quickly so gentleman you have your work cut out for you and we need your help in tackling this crisis. i look forward to your testimony. thank you mr. chairman. >> thank you. i think everyone has had a chance to give an opening statements will now turn to our panel. we have our two witnesses today.
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i want to welcome you. let me introduce on my left, dr. thomas said to his director for the centers for the centers for disease control and prevention and to my right is dr. anthony fauci who is director of the national institute of allergy and infectious diseases. thank you are being with us today. sorry again you had to wait. we have five-minute opening statements that are made part of the record and you can submit additional statements or comments after we meet and also follow up with written questions. start with dr. frieden. >> thank you very much chairman pallone, chairman emeritus dingell, ranking member shimkus and members of the subcommittee for your interest in holding this hearing. as an infectious disease physician myself and having worked at the tuberculosis control officer, health commissioner for more than 20 years i have seen the growing problem of drug resistance and also the potential to prevent and reverse drug-resistant with effective public health action.
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i appreciate the opportunity to speak with you today about the public health threat of antibiotic resistance in the world the cdc plays in preventing, detecting and better understanding and responding to the problem. i would like to show several slides to illustrate the problem. the first one shows the increase in drug resistance in different organisms. staphylococcus aureus, resistance to penicillin that emerges almost immediately after penicillin became available early on. tiny doses of penicillin were able to cure severe infections with staff aureus. this resistant organisms first emerged in the hospital and then after a decade or so in the community. that same pattern has existed with mrsa, which first emerged in hospitals in the late 70s or early '80s and over the past decade we have seen increasingly in the community.
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antibiotic resistance is an increasing public health problem. assistance occurs wherever antibiotics are used. many bacteria become resistant to more than one type of antibiotic and doctors and nurses are faced with treating infections with antibiotic cases that are sometimes nonexistent. as resistance increases, but the risk of death and health care costs increase. addressing each antibiotic resistant pathogens requires a balanced portfolio. a multifaceted approach that would reduce inappropriate use of antibiotics, prevent the spread of resistant organisms and develop new antibiotics for the future. dr. fauci will speak about the need to continue and accelerate our efforts to develop new antibiotics but unless we improve our monitoring and use of antibiotics to effective public health action we will
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steadily lose the ability to use both current and future drugs. the nexslide shows or approach to combating antimicrobial resistance. it starts with surveillance, understanding what is happening. surveillance is key to assessing and monitoring the scope, magnitude and attitude in terms of antibiotic resistance. surveillance data can drive and direct prevention efforts and determine treatment recommendations, guided drug development and evaluate whether our prevention efforts are working. we need to detect and respond, including two more effective laboratory facilities and hospitals, state and local health departments and throughout the federal system. we need to develop and implement prevention strategies. an example of this, the cdc working with the veterans administration hospital in pittsburgh documented a 60% decline in mrsa infections. that same approach was rolled out to the va system nationally and then to many other health
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systems nationally. although drug resistance is a growing problem, we have had some good news in that it has been a documented decline in mrsa nationally by about half and methicillin susceptible infections in hospitals by about 70%, according to the hospitals we tracked over time in the national health care safety network. finally to rigorously evaluate the impact, to see what is working and what is not. in my written statement i highlighted several high-priority antibiotic infections and prevention strategies and my next slide outline some of them. mrsa, gram-negative rods,. they are becoming increasingly resistant around the world, tuberculosis where infections increase the risk of death and in the cost of treatment. generally we work to improve antibiotic use, but is located
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rapid and accurate diagnoses, improved treatment of infections we have seen significant progress in reducing inappropriate antibiotic use when preachers and, infection control and wherever possible create and distribute vaccines. for example to prevent pneumococcal infections. a vaccine which has prevented about 10,000 deaths and saved more than $300 million in direct medical costs each year over the past decade. we speak of the pre-antibiotic and antibiotic eras but if we don't improve our response to the public health problem of antibiotic resistance we may enter a post-antibiotic world in which we will have few or no clinical interventions for some infections. we are working closely with our colleagues across hhs on this important issue and we very much appreciate the committee's interest and welcome your questions. >> thank you dr. frieden. dr. fauci. >> mr. chairman, ranking member
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shimkus, mr. dingell and members of the committee thank you for calling this hearing and thank you for giving me the opportunity to discuss with you for a couple of minutes here to roll the biomedical research endeavor and a comprehensive strategy to address antimicrobial resistance. as shown on the sde on the screen as pointed out so well by dr. frieden, the strategy to address antimicrobial resistance include surveillance, infection control and the promotion by various means of the rational use of antimicrobials. an important component of that strategy is the biomedical research endeavor, fundamentally to understand the mechanisms of resistance and to do the basic and clinical research to develop the countermeasures that are needed against microbial resistance. on the next slide is a picture of a journal in which we have published their research agenda of the national institute of allergy and infectious diseases, which have three major pillars to it. basic fundamental research,
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clinical research and transnational research leading to product development. on the next slide i want to very briefly address the issue of basic research. fundamental to the basic research approach is the study of the microbe itself. we have been enormous leaf bud at an advantage over the last decade by the striking if not stunning advances in the ability to sequence the genome of microbes. just to give you an example, in 1996, when the first microbe come become opelousas influenza was sequenced it took a year and a million dollars. in the year 2000, you can sequence a bacteria for about $50,000 it would take about four days. today you can sequence a bacteria for 1 dollar it takes just several hours. we have the capability right now to do sequence e., math
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sequencing of microbes as they evolve into their resistant form. this gives us the opportunity of what we are pursuing very aggressively in our research to determine the mudd it-- molecular resistance and to use that to target both diagnostic vaccines, but importantly, to target new pipelines of antimicrobials. in addition, we study the host pathogen interaction, namely how the microbe virus or bacteria interacts with the host and with the body's immune responses in the form of immunological response. on the next slide, we also do clinical research activities. as dr. frieden as pointed out, we focus on some of the problematic organisms. in this case obviously one that was mentioned several times already this afternoon, methicillin resistant staph aureus. in addition the escape organisms which are also prone to resistance are on our top
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priority. what do we do with clinical trials besides testing new drugs? we determined under certain circumstances if treatment is even needed, such as in some of the infections that turn out actually to be viral infections in which the use of antibiotics might not be appropriate. we also need to know how much antibiotics we should use and for how long. the appropriate duration of therapy for different types of infections are still not fully worked out. importantly, we are looking for new uses for older drugs. drugs that have fallen into the-- because the more modern antibiotics might be brought back into the ballgame to treat multiple drug-resistant microbes. on the next sde, it is a scheme that goes from left to right. i think this is a very important slide that i would like to spend a minute on because it is a scheme of what happens when you develop products for antimicrobials, in this case those that are resistant.
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on the far left is what the nih, niaid in particular does best and as more intensively and that is the fundamental research to develop the concept to ultimately on the far right-hand side of the slide, to develop countermeasures. these could be diagnostic which are critical in the antimicrobial resistance because you want to know if you are dealing with a resistant micro. the other is a vaccine which somebody mentioned to prevent some of the infections in the first place and finally the development of new antimicrobial drugs. i should go from left to right, industry plays more and more of a role and as we have seen, the incentive for industry to get involved in the development of new antimicrobials is not very great and i heard several of you mentioned in your opening statements that we need to address some of the incentives we might partner with them and getting them involved in a very important public health problem that they don't have as an
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economic incentive, something that is really a great drive on their part to get involved in this is something that we generally use when we deal with emerging microbes for which there are no countermeasures and i believe this is something we should address when they are dealing with the addressing of older microbes that have developed resistance. finally, to just go back to my first slide, to reiterate that there are multiple strategies and multiple components of strategies to develop the issue of antimicrobial resistance and in conclusion i want to say that we will continue to pursue the biomedical research approach as an important part of a comprehensive strategy. thank you mr. chairman and i would be happy to answer questions. >> thank you doctor and now we will have questions for five minutes or in some cases aid of some people wave their opening statements and i will start with myself for five minutes. i guess i am really addressing
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this to both of you because both of you agree that resistance occurs wherever antimicrobial is used whether it be in the community, on the farm or in health care. i don't have time for all of you so i'm going to concentrate on resistance in the community and hope that my colleagues will talk about farm use or use in health care settings. let me just focus on the community. you both describe described way so much antibiotics are prescribed in the community and when we say using the community i mean outside of the hospital. dr. fauci's testimony described the fact that physicians often prescribe antibiotics to patients who have viral infections and not bacterial infections simply because patients come to expect or demand treatment with antibiotics, even when they can't-- so my question is how concerned should we be about these practices or i guess to put it bluntly, our doctors
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using antibiotics inappropriately and too frequently and if that is true, what can we do about it? either one. >> dr. frieden. >> thank you. the centers for disease control has a survey called the ambulatory medical care survey. this is one of our main instruments for determining what doctors practices are and allows us to check over time what happens in clinical encounters. since we have this nationwide-- in the surveys we have seen an improvement in that there has been a smaller proportion of patients who come in with for example upper respiratory infection, who leave with an antibiotic, which they shouldn't leave with. it still remains too common a practice in the challenges educating physicians and having them with a monitoring system in place to give feedback to clinicians. one of the things we-- will greatly facilitate that work is electronic health records to remind doctors that the system a
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good use of antibiotics or contracting give feedback on the behavior of individual clinicians are so we need to both have the monitoring. we need to intervene by educating better and we need to put into the process of health care automatic ways of telling doctors are helping doctors to make the right decisions. >> i have to say it is hard for me to relate to these questions because i never want to go to the doctrine when i ago i try to avoid having them give me anything but i know it is a common practice. >> actually i agree completely with dr. frieden and also it is an issue of getting better sensitive point of care type of diagnostics where you can really underscore and confirm because sometimes when a physician is talking to a family member and they say you have got to put my child or my husband or whatever on antibiotics because they know that either have an infection or are going to get one. if you can and often show
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immediately that person does not have a bacterial infection i think you will go a long way to convince the person that the decision that physicians make it is the appropriate decision. >> what is the get smart campaign that the cdc has been working on, dr. frieden? do you want to talk about that and i guess you haven't recommended that it continue in the budget so do you want to say why? what it is and why do you are not recommending that we fund it again? >> the get smart campaign is an educational intervention that works with reducing unnecessary or use of antibiotics. we are faced with significant budget constraints. we are not able to continue or expand all the programs which we would like to continue or expand and we are committed to maintaining and strengthening work to reduce antimicrobial
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resistance in every way we can within our budgetary limitations. >> the reason you have not recommended continuing it is not because it isn't a good thing but it is not that important compared to other priorities? is that fair to say? >> we believe the program is effective but we are not able to include it in the current budget request. >> so, the answer is yes? i want you to reflect that you said yes, not me. the gentleman from illinois, mr. shimkus. >> thank you mr. chairman. i'm trying to get my hands around this i think conjecture that is making the claim that antibiotic use in animals is translated in changing the resistance in humans, which in one of the testimonies kind is said that casually. their assumptions made on the other side. is there any peer review, cdc study that shows a direct
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correlation to support that assumption? >> it is clear that any antimicrobial use will result in the emergence resistance and spread of antimicrobial resistant organisms, so the use of antibiotics in the farm animals will generate the development and spread and persistence of antimicrobial resistance among the farm animals. your question relates to whether there is evidence that that resistance has spread to humans. we do know that there are many interconnections between human and animal health. there is experience from several countries in europe, where prescriptions of an antibiotic that is related to vancomycin was shown to be associated with an increase in the vancomycin resistance among humans.
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that was experienced in the european union countries. that antibiotic was burnt-- band and resistance levels then declined. there is no scientific doubt about the theoretical possibility of transfer of parts of viruses, transposed into other ways you could spread antibiotic resistance from animals to people. there also are many outbreaks. >> i only have a limited amount of time but the question is do you have peer-reviewed scientific research that shows this connection? , the cdc? >> what i said is there is peer-reviewed research in europe. in the united states it has not been to my knowledge documented. >> my point is this and i use this across the board and on this committee, that running on emotions is running on emotions. running on science and fact, peer-reviewed replication is
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critical if we are going to move public policy and we don't seem to want to do that here in washington. but, do you know the danish study? have you followed the danish example of banning antibiotic use in livestock? >> i'm not familiar with a specific study. >> not a study. they actually banned antibiotic use in livestock and what they found us a couple of things. antibiotic resistance even though it was banned increased in humans. issue one. issue two was antibiotic use increased in the use of animals because it was then used therapeutically, so then the other question that has to be asked is, would we rather have in the livestock consumption industry antibiotic use for healthy animals or would we rather be using antibiotic use
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treating sick animals that eventually going to the food chain? these are all part of the debate, and i just wonder-- want to caution people to make this jump on this without scientific research, peer-reviewed studies that makes a direct correlation and again i think i've friends would want to do this. one of the issues of this is the industry, how do we get industry to develop that? we have done that with different types of drugs and chairman waxman has been good and how do you get industry to market in areas where we want to do it? able to you one thing that we don't do is we don't add an additional 27 billion-dollar tax if you are trying to incentivize to create lifesaving antibiotics, which we just did in health reform bill.
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and i'm concerned that if we go and take antibiotic use out of livestock, if you believe in economics 101, supply and demand, you reduce another supply avenue for selling antibiotics. then you limit the ability of a return on investment on those companies producing it to begin with. so, this is an important hearing and there is a lot more scientific aspects to this but i would just plead that we make sure any action we do is not raised upon emotion but they we to peer-reviewed science and with that mr. chairman i yield back my time. >> thank you or cochairmen waxman. >> thank you mr. chairman. i am trying to understand the science. it seems to me from what i've understood that when you use an antibiotic over and over and over again inappropriately and by inappropriately i mean not to deal with a bacterial infection but for other reasons, whether
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it is used on an animal or on people, it increases the chance of resistance to the antibiotic. is that a correct statement of the science? >> yes, it is. i mean that is just the nature of how organisms are involved. you put any pressure on them, they will select the survival and survival is resistant. it is a natural phenomena of the interaction of a microbe with the pressure you put on the micro. that is the scientific reality. >> so to avoid antibacterial resistance, microbes, we should be sure that we are using the antibiotics where it is necessary and not using it where it doesn't have a therapeutic purpose? does that make sense? you both answered yes. >> there is no disagreement about the use of antibiotics to
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treat infections nor is there disagreement about the theoretical risk of promotional resistance to the widespread use of antibiotics. >> i don't know of anybody who would argue that we shouldn't give an antibiotic to an animal that has an infection, because it is for a legitimate therapeutic purpose. i haven't heard anybody argue we should give an antibiotic to a person who is a bacterial infection if that antibiotic and stopped at bacterial infection, but if you give it to large numbers of animals for don therapeutic purposes, let's say as a preventive, if you give it to kids who may have a virus and not affect serial infection, aren't we running a greater risk of resistance? >> yes. are basic principle is to promote judicious use of antibiotics. the institute of medicine is has called for the phasing out. >> is this from science worm
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europe or is the science that is accepted here in the united states? >> public health authorities including the institute of medicine have called for a phasing out the abuses to promote growth. there is no disagreement as you note about use for treatment or evidence-based prevention of infection. >> dr. fauci i think you particularly raised the question is that we don't have companies making new products. we need new breakthroughs, antimicrobials, and it appears to be market failure. now, i don't accept the idea that if we used it in a more widespread way that that would encourage the drug companies to make more antimicrobials. it sounds to me like we are running a risk of making more bacteria resistant diseases might make them more money but i'm not even sure then it is the product won't work after a wild.
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we have had market failures in the past and you and i were in this room many years ago when we first heard about the aids epidemic and we were trying to deal with it. there was a small patient population we didn't know what resources we had to treat them. in this room we had many hearings on people with rare diseases that didn't offer profit potential for companies to put efforts into drugs for people with a small number of people infected by the diseases. disease is. we came up with the orphan drug act. we tried to give other incentives for research and development. we have a patent law. we have renewal of time that is lost in the fda to help the producers. do you have any other ideas on how we can correct what appears to be a market failure? is it just because it is not
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profitable to produce these antimicrobials because they were too few seldom used and not widespread enough? >> certainly mr. waxman, that is one of the major reasons why pharmaceutical companies, who do great things come are driven by the profit origin and what they have to answer to their board and if a company has a choice of making a major investments to develop a new product, a new drug, it is several hundred millions of dollars, an average of $700 million which includes a risk that they taken the development of the product. if they are going to make a choice of making a product that a lot of people are going to take every day for the rest of their lives, they lipid lowering agent or whatever you have, they are going to lean towards that rather than make a new product that a relatively small proportion of the population will use maybe 10 days to two weeks out of the year and then because it happens naturally,
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that after a period of time there is going to be resistance against that antimicrobial soap from the interactions i have had with industry, we need to work with them in partnership to figure out what incentives we can do. we at the nih, i show that's like, we are fundamentally doing clinical research but what we are doing now is we are offering some of our research resources, our animal model capabilities, the agent repositories and even our clinical trials capabilities to lessen the risk of an investment on industry, to give them more of an incentive to get involved and i'm sure there are other types of financial incentives that could be worked out in an appropriate way but i really do think we need to push the envelope a bit and getting rid of some of the disincentives for getting them in both. >> one last question. i assume this was a problem even before the health insurance bill was passed last month. >> yes sir.
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it is probably a bigger problem now though. >> i yield back. >> thank you chairman waxman. the gentleman from texas, mr. burgess. >> i am struggling to keep from taking the bait. let me depart for just a moment because we only show profitability-- penicillin is clearly a wonderful discovery and for alexander fleming appropriately ignited by the king or the queen, properly honored with a statue erected by the bullfighters in spain that really it was an american manufacturing company, i believe it was spicer during the second world war that changed the penicillin from a parlor trick that inhibited bacterial growth on in ag replayed to a clinical utility for hundreds of thousands of people because of the ability to create a lot of it in the manufacturing process
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they developed during the second world war. you argue it is truly a profit motive. they would accept those doses of antibiotics loan cap the price hike, but they went with mass production and as a consequence soldiers during d-day were spared life and limb because they had readily available abundant, cheap penicillin which you alluded to on your slide welch-- worked well until they figured out they could chew up the ring and survive nicely with their cell wall intact despite the penicillin. it is not always the profit motive. i am telling you stuff that you know better than i. this was a seminal event in american medicine that fundamentally change the way subsequently all of us were trained to practice and the generations that followed. it truly was a life altering event. but, let's think for just a minute. dr. fauci, the new molecular
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entity for broad spectrum antibiotics that have been introduced by the fda in the last 10 years, do we have an idea of how many new drugs have been produced? broad spectrum antibiotics? >> new antibiotics, very few, handfuls. >> i have a list of 10, does that sound right? >> that sounds right. >> my staff has got me about 25 pages of antibacterials that been approved for new indications and you reference that on your slide, new chores for old drugs that we might find but, these older drugs, not necessarily helping resistance, they are just an antibiotic that was found to have an indication for something else. so the problem is that there are only two-- 10 truly new antibiotics produced in the last decade, and i have another
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document attracts $92 million of federal research at your institute dr. fauci in fiscal year 09 alone on antibiotic research. does that sound like a fair figure? [inaudible] about 200 plus. >> my numbers were low. so taxpayers are popping a lot into the pipeline, and we are getting out of at the other end approximately the average of one new antibiotic a year? am i making the correct. >> well, i would ask the question, do we have a problem with the pipeline, so where in the pipeline is the problem? is that the dollars we are pumping and? isn't the resource we are
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putting into it? is that the fda? where's the problem in the pipeline? >> mr. burgess the problem in the pipeline is right in the middle of that arrow that i showed in one of my slides and that is that the pharmaceutical companies, is much as we can do research and we can sequence. i mention that for a reason. we can sequence a thousand microbes very reasonable price really quickly. we can pinpoint all of the different targets that could serve as a target for the development of a drug. there is not an overwhelming incentive on the part of companies to get involved in developing a new antimicrobial, and that is the reason why and the answer to the question of was-- mr. waxman i emphasize that there are a lot of issues that go into why we don't have a lot more drugs for the amount of fundamental research money that we put in, but one that is really paramount is to get the companies involved and
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incentivized into wanting to make them. i don't have the complete answer for that. we are trying to the things that i mentioned in response to mr. waxman's question that we need to do better than that. >> i really don't want to cut you off because they know your position in the scientific world and mind, but i need to ask you this. market incentives, are those always dollars or are there changes we could make in the regulatory level that would help the environment? >> the fda right now is putting a considerable effort in pushing what is referred to now is regulatory science. in other words, to get them involved in developing biomarkers, two clinical trial designs that would facilitate the development of any product including a product geared against a resistant microbe, so there is something we could do
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at the regulatory level in the fda is trying very hard to push that agenda. >> i am going to ask mr. shimkus this question because i can't help myself. can we put a 27 billion-dollar new tax on to the industry under the health bill so is that likely to have a positive or negative effect on the pipeline problem that we have? we will go to the next question. [laughter] does your institute track how much research is invested and translated into applications of approval at the fda? what kind of data does the national institute of infectious disease have that could be shared with the subcommittee? >> when you say information, everything we do is transparent. you get any information you want but i think you were asking. >> the application for approval, the application to go over to the food and drug administration and the approval that come out of the other and?
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>> as a product. >> as a product. >> that is the question that is difficult if not impossible for me to answer because we don't control the concept of products. we do fundamental research that might develop a concept that could be pushed to the preclinical but if we were to solely be responsible from soup to nuts i could give you an exact answer, but we are not. we have to punted to the pharmaceutical companies. that is the point. >> it seems the slide that one of you showed with a methicillin-resistant staph aureus and the community acquired, i think a huge problem in dormitories and public shelters, seems like the market is being created and none of the companies are interested in being the first one to cross the finish line with the a silver bullet for mrsa. where's the paul ehrlich of our generation? >> i would think personally a company would be very interested in getting in it.
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they balance the risk for the benefit and say mention there is there is a considerable risk for a company to put several hundred of millions of dollars to develop a product and what i would be proposing is that somehow we and the federal government help alleviate that risk by doing some of the things that i mentioned we can do but we are not the only player in this. >> a quick question on hospital-acquired infections. might epidemiologist that i rely upon a lot back in dallas is bob haley, and he told me early on that in order to take something you have to be able to measure it and in the church to measure if you can't have people frightened to report data to you or you will never have the accurate data to measure. is that a valid observation and? >> we have already 28 states reporting mandatorily and half
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of all hospitals in the country. >> which brings me to the point, what is the best approach here? i've always felt that at the 28 states that report, find the best practice or sets a floor perhaps at the federal level, let you guys deal with the, identify the aggregate data so you are not getting into privacy issues so that you then have the data to study as opposed to what we seem to see here in the committee sometimes looks very punitive and as somebody who has practiced medicine for years if you make a punitive, doctors we will find a way to obscure things for you so you don't pin it on us. i'm oversimplifying but that had tried to peer concept is one that we need to have breaks, cms needs to embrace and i would just encourage you to continue to work along that line and i think that is where the ultimate answer for this problem lies. >> thank you mr. chairman for
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your indulgence and i wheeled back. >> chairman dingell. >> thank you mr. chairman. gentlemen, welcome to the committee. i am curious, has there ever been a definitive study on the impact on microbes and other similar creatures to define what the impact on them might be in terms of resistance to antibiotics by reason of using these antibiotics in animal feed and for other similar uses? >> there are clear studies that show the use of antibiotics in animal feed increases resistance among animals. >> among animals are amongst bacteria? >> resistance of the bacteria that are resident in animals, within the animal. >> would such a study be useful? i mean as opposed to bits and
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pieces. >> there is an increasing body of evidence that looks at where antibiotics resistance emerges and where it spreads and an additional evaluation of that to understand the spread from animals to communities i think is something that is, many groups are working on. there is not right now definitive evidence. there is a clear understanding that the more judiciously we use antibiotics, the longer we will be able to continue to use them effectively. >> has ever there have been any work done to-- in other words, how much is necessary, how much is too much, how much does not work, how much we could do without, and what would be the benefits of the different steps? has there have been any study of this kind? >> as the director as the center
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for disease control i would have to defer to my colleagues at the fda and usda. >> who has authority to do this kind of research or to fix this level of tolerance for content or the time in which these antibiotics are fed or inserted into animal feed? >> misters dingell i would imagine the most appropriate venue would be for the u.s. department of agriculture. that is an obvious question of great importance. >> do they have the authority? >> i don't know if i can answer that definitively. i cannot imagine that they don't have the authority to do a study if they would want to do at. >> i would imagine that they do have authority and the mac, that they don't use it if they do.
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let me go into some other questions. the cdc's overall budget would see a 5% cut in the antimicrobial resistance program would see a cut of more than 50% gentlemen, do you think these cuts would negatively impact the work you are doing related to antibiotic resistance, especially support for state and local surveillance prevention and control efforts and to get smart campaign and? >> mr. dingell we are committed to doing as much as we can. >> that is not the answer to my question. is that level of cuts going to her what you are doing? the it will be difficult for us to continue current glance at that level of. >> would you submit for the record the level of what your request for financial support of these programs in the budget,
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and also submit the amount that you have been given for the last three years and for the coming three years? >> we will provide that information. >> alright, now, you have addressed this slightly but i would like a little more on it. there appears to be much debate over whether the practice of adding antibiotics to agricultural feed is thought to promote drug resistance. what this current science and surveillance tell us on this point? is very direct link and what is it? >> i think we know theoretically there is a risk. there is literature that we have reviewed outlining the problem that clearly emerged in europe. i'm not aware of evidence in this country that is documented the spread from animal to human,
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feed animals to human. of course we have seen spread from animals to humans in a wide wide variety of infections but we know the more antibiotics are in the environment, given to animals and people, the higher the selective--. >> let me try sir to reduce this. i am getting the impression from what you two gentlemen are telling us here that we really don't know what the nexus between the feed is and antibiotics added. when there is a point of danger, and what is the level of danger and what research is going on. what, do you make on that statement? >> from your question mr. dingell and the questions we have had from the other members, there is no doubt in anyone's mind that if you give antibiotics to anybody, any animal and you do it chronic
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lee, that resistance to my groups will evolve. i think the question mr. shimkus brought up and others is, what is the evidence that if you give it to an animal for feed and resistance develops in microbes, and that animal, that that resistant microbe will then spread to a human? >> it might spread to other microbes or it might to humans but i would rather come into closer that you don't have much information right now. let me doctor get to this because my time is limited here. the food and drug administration for its approval for the use of quinolone antibiotics in part three. are there any preliminary surveillance reports that would indicate the impact of fda's position?
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yes or no? >> we would have to give back to you on that. absolutely. >> now, dr. fauci in addition to work your agency is engaged in with the smaller manufacturers, what additional steps can or should be taken to incentivize participation of industry, both large and small manufacturers in developing new effective therapies for these drug-resistant infections? >> there are several things that could be done mr. dingell. one is to make available to the companies some of the assets and capabilities that we have in the government, including the institute, and that is various reagent repositories, animal
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models and clinical trial capabilities and then also to reach out and partner with them on their risk for the advanced development, something they generally do themselves and if we could diminish somewhat the risk they take their think there will be much more of an incentive. >> is this question raised at any point in the government regulatory structure when you address the questions of whether or not or how how much antibiotics should be used in animal feed? and if so, who has the authority to do that? >> that is not something that we as a research--. >> if we are putting too much in the animal feed, not using it wisely and don't have to take their constraints on its use, we are obviously increasing their risk if the risk there is. is that right? clearly the answer to that is
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yes. >> i am not sure. >> would you say there is no risk in this? we are agreed-- my time is limited and i'm trying to get through here. who has the responsibility for defining the level of risk and defining what have we done to protect the american public and the world against runaway infections caused by antibiotics that no longer work and-- on resistant bacteria? does anybody have this authority are not? >> the fda. >> they do? ps. >> okay. the drug act was written in 1983 to encourage pharmaceutical companies to develop drugs for diseas

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